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ASSURED GUARANTEE SEEKS LIFTING OF THE PROMESA STAY

Assured Guarantee Corp. and Assured Guarantee Municipal Corp., which together insure around $1.2 billion of the PR Highway Authority’s (PRHTA) bonds, filed on July 21, 2016, an emergency motion for relief of the PROMESA stay of section 405. They seek the lifting of the stay for Governor García Padilla, pursuant to the PR Moratorium law has allowed the PRHTA to divert pledged toll revenues, taxes from gasoline diesel, crude oil and others, as well as motor vehicle license fees, to pay operating expenses that are subordinate to its bonds and fund “essential services” that include payments of debts to the GDB.

The petition claims, quite correctly in my opinion, that the PR Moratorium law is preempted by 11 U.S.C. § 903. It also claims that Section 303 of PROMESA preempts the Moratorium law and the Governor’s executive orders. In addition, Assured avers that the Moratoriums law and the Governor’s executive orders violate the Constitutional prohibition against impairment of contractual rights, that they constitute a taking without just compensation, is a denial of the right to access federal courts, as well as the PR Constitution and laws. Additionally, Assured avers that Moratoriums law and the Governor’s executive orders violate sections 204(c)(3)(A) and 407 of PROMESA. This is similar to what the complaints by Brigade, Lex Claims LLC, y Peaje Inv. See here, here, and here.

As I predicted in a recent Forum on PROMESA, Assured and other plaintiffs seek the lifting of the PROMESA stay using Bankruptcy Code precedents, specifically cases interpreting 11 U.S.C. § 362. In my own bankruptcy practice, I have performed this procedure half a dozen times and have yet to fail in obtaining the remedy of lifting the stay. In PROMESA, it seems to be easier since section 405(f) of PROMESA states that if after 45-days of the petition for the lifting of the stay, the Court has not ruled for it to remain, the stay is automatically lifted. Hence, no later than September 5, 2016, Assured’s request has to be denied or the stay is lifted. Although the case has been assigned to Judge Jay García Gregory, he has been recusing himself of other PR bond cases and the case may end up assigned to Judge Besosa who already has 3 others challenging the PR Moratorium Law. I believe that Judge Besosa will rule on these motions by August of 2016.

Assured also claims that it does not need to seek the lifting of the stay but if one examines the tendered complaint, one sees that it seeks damages pursuant to section 407 of PROMESA. That request is the reason I believe Assured did not directly file the complaint but instead sought the lifting of the stay. As I said, Judge Besosa will probably have this case assigned to him and will rule on these issues promptly, probably by August of 2016. We will soon find out.